How to avoid unseen expenses in business solutions

Written by Jack Knollson | 25 March 2009

The profit in many business-solution sales comes from the licensing of software. Such profits are often well deserved and earned by years of development and refinement. In spite of all this work, many of the purchasing companies find that total cost of ownership includes installation, customization, and maintenance - three expenses that are often beyond the known costs.

How can companies avoid this common situation? Here are three possible solutions.

1. Ask the sales rep for a total cost of ownership (TCO) analysis. Some companies have prepared materials on this subject in the form of a white paper or case study. In some cases, you can ask the vendor to quote on operation and maintenance of the system. It may seem like an off request, but it will make them think about what they are selling you. If they come back and say it will take two full-time employees and quarterly updates, then you have your answer.
2. Ask other companies that have purchased the solution. Short of simply calling them on the phone, you might find articles (case studies or reports) on the Internet about TCO for major systems. You could even ask your sales rep to give you the name of a customer who is using the system and who would be willing to talk with you.
3. Go to the Analysts. The major analyst firms (Gartner, Aberdeen, IDC, and others) will often create a TCO report on popular systems. Note that a $500 report that prepares you for a $500,000 total cost of ownership is probably worth it.

The most important thing to realize is that many projects are funded for the price of the system software and initial set up only. Later, when you find there is no money to pay operators or maintainers, you will with you had checked on the TCO in advance.